Hartford Investment Management, the asset management division of The Hartford Financial Services Group, has hit the ground running with its new leveraged loan team. In April, the Hartford-based firm, which was already established in managing other fixed income products, signed on a team of five ex-CIGNA Investment Management loan professionals to spearhead the firm's first-ever stint into leveraged loan investment management. Now Hartford has some $750 million in assets under management through two collateralized loan obligations (CLOs), with even more structured loan vehicles on the horizon.
"We're a firm that manages a lot of different asset classes and sub-asset classes in fixed income, and we came to a point in time where we were ready to branch into loan investment," said Andy Kohnke, managing director, head of client services and business development at Hartford. Moving into loans was the next logical step in Hartford's investment strategy, he added.
As a result, when Hartford came across a handful of CIGNA loan professionals who were looking for a place to park their loan investment portfolio after CIGNA had decided to exit the loans business, Hartford pounced on the opportunity and acquired the portfolio and its management team.
Indeed, despite Hartford's plans to enter the institutional loan market well before the looming threat of rising rates emerged, Kohnke admitted that the strategic decision came at a good time, offering an alternative for its fixed income investors. "We do see some interest [in loans] from traditional and non-traditional investors because of the rising rates," Kohnke said.
Now, with Mike Bacevich leading the new loan team as a senior vice president, Hartford is busy managing two acquired CLOs, while also getting the ball rolling on a new CLO in the foreseeable future. "It's a good time for CLOs," Bacevich said, noting that Hartford is in the process of meeting with various parties and discussing plans for a new fund. He declined to offer a timeline or other specifics on a future structured vehicle, but he said Hartford is targeting a fund between $350 million and $400 million, that at this point may be either a cash flow CLO or a structured note CLO.
The two CLOs Hartford inherited from CIGNA are structured note CLOs, Bacevich said. The first $400 million CLO, Stanwich Loan Funding, was put in place in June 2001, while the other $350 million CLO, Trumbull Rated Loan Trust, closed in May 2003. Bank of America arranged the Stanwich CLO, while TD Securities underwrote the Trumbull CLO.
There are several reasons why it is a good time to close a new CLO, Bacevich said. "There's a lot of new volume on the new issue side," he said, noting that he was looking at a list of at least 20 new issue deals to possibly invest in last week. "Spreads are tight, but favorable financing on the [CLO] liability side can offset that," Bacevich added.
As for investment parameters, the strategy of any of Hartford's new or existing CLOs centers around loans rated in the double-B range, Bacevich said. The firm is selective with deals in the single B range, he also said, noting that some lower-rated deals hitting the market lately are too highly levered for Hartford's liking.
"There are a slew of single Bs in the market that are usually smaller, middle market deals," Bacevich said, explaining that these deals fall outside Hartford's investment strategy. "We are being very selective."
In addition, Hartford hasn't invested in any institutional second lien loans to date, but the firm has not ruled them out, Bacevich said. And for now, Hartford does not invest in European bank debt either, Bacevich added. Still, for the most part, Hartford has a very diversified portfolio with loans deriving from a number of different sectors and categories, he said.
Doing business in the secondary loan market is also something Hartford is open to when conditions are appropriate. "Prices in the secondary right now are rich, but if the price is right, we will buy," Bacevich said, noting that his team has been better at selling in the current secondary market - which has seen many loans trading well above par.
Besides Bacevich, Hartford's loan group includes four other ex-CIGNA loan professionals: Clifford Abramsky, Michael Ashton, John Connor and Francesco Ossino. "We will hire as needed based on our growth," Bacevich said regarding the prospects of more hires to the loan team in the future.
Hartford Investment Management, including the new loan team, provides investment services to mutual funds, employee benefit plans, insurance companies and other institutional accounts. As of Dec. 31, 2003, the firm had approximately $32.4 billion of assets under management.
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